Recently on an episode of the “Orange Pill Addicts” podcast, I was talking to a financial advisor and asked the question, “What was the role of a financial planner before 1971?” Using the history of markets, legislation, and financial advice, here I examine how governments over the past 100 years have caused monetary turmoil while creating a market for financial planners. I also suggest what the role of a financial planner would look like in a sound financial environment.
To understand the history of financial advisory, we must start with a brief history of the markets as we know them. There were some early markets that appeared in Europe starting in Antwerp in the 1500s. The port of Antwerp found itself between the Germans, who traded in furs and rye, and the Italians, who brought gems from the Far East. The owners of the tavern in the city will provide shelter, while also helping travelers exchange goods with each other. Over time, they began to establish exchange rates and by the 16th century, they were trading more in promissory notes rather than exchanging commodities. Then, in Amsterdam in 1602, the Dutch East Trading Company became the first publicly traded company by going public with “all residents of these lands” and inviting all Dutch people to be able to invest.
In 1792, Wall Street stockbrokers met to create the Pattonwood Agreement for the Sale of Stocks and Bonds, which would eventually become the New York Stock Exchange. Charles Dow created the Dow Jones Industrial Average in 1896. Then, in 1923, Henry Barnum Burr issued the advance version of S&P (became Standard & Poor’s after merging with Standard Statistics in 1941), followed by the MFS Massachusetts Investors Trust offering the beginning of the modern mutual fund. in 1924. While these US markets were maturing, they remained almost completely unregulated until the stock market crash of 1929.
In the 1920s, if an individual wanted to buy shares in a company, he would personally go to a stockbroker for the purchase. It was fairly simple, Person A wants to buy shares in Company B, so they go to Broker C to make it happen. While information was traveling much slower at the time, unfortunately, it was traveling much slower for the general public. The individuals closest to the information and press of the newspaper were able to act faster on useful news. The problem was that Person D invested in information that Person A knew much earlier. This landscape of investing will change drastically in the next decade in response to the stock market crash. In an effort to prevent another crash, Congress passed the Securities Act, which President Franklin D. Roosevelt signed into law in 1933. This was the first time the federal government had passed legislation to regulate the nation’s stock markets. The federal government intended the law to protect investors, create transparency for businesses and their funds, and prevent misrepresentation and fraud.
After the Securities Act is signed, the SEC (Securities and Exchange Commission), NASD (National Association of Securities Dealers) will be created, and ongoing legislation over the coming decades. In 1952, the economist Harry Markowitz laid the “Foundation for Modern Portfolio Theory” with the goal of optimizing client investments. In 1958, John Cable and Richard Felder founded the Financial Services Corporation. Over the next 10 years, they will grow their business to do about 300 financial plans per month. In 1966, Keeble realized that when it came to insurance and investments, it was the customer’s needs that drove sales. In less than 50 years after the first legislation, the United States will see the creation of commissions, corporations, associations, colleges, new investment strategies, and tax incentives as a direct result of federal laws. The development of new laws, theories and strategies set the framework for the needs of the general public for a financial advisor.
On June 19, 1969, a man named Lauren Dunton started the Association for the Ethics of Financial Counseling. This community recognizes individuals who assist the public legally and ethically through financial advice. Six months later, Dunton met 12 other men in Chicago on December 12, 1969. The group of attendees mainly had a background in mutual funds and insurance and were meeting in the midst of a bad economy. They were seeking positive solutions to deal with the new economic situation. The International Financial Planning Association, which will create the College of Financial Planning (CFP), will emerge from this gathering. Within four years, the college released a five-course curriculum and graduated its first class with a CFP rating. This certification continues today through the Certified Financial Planner Standards Board. Chicago 13 now enjoys general consensus about starting financial planning as a professional practice.
All this to say, as the 1970s approached, the bureaucracy in financial planning was already thicker than muck and the profession itself required more competence. Can you begin to see where this progress is leading? At this point, the United States was at the height of the Vietnam War and was spending more money to fund the war than the government could justify with what was in its gold reserves. Then, in August of 1971, President Richard Nixon dealt the final blow to the gold standard when he decided that the US dollar would no longer be tied to gold.
The financial planning industry was now out of the races. In 1974, the inflation rate was 12.3%, up from 5.6% in 1969. The US press was printing money faster than ever before, and the US dollar was no longer a safe tool for storing one’s wealth. The higher the inflation, the greater the need for financial advisors. Moreover, the increase in legislation passed, the task of financial planning has become more and more complex. Therefore, due to inflation, the public needed financial planners and because the field became multifaceted, they could not do the job on their own. Whether intentionally or unintentionally, the government created a problem (inflation and complex markets) with the creation of an industry (financial planning).
In the early stages of financial planning, the role looked different than it does today. Investors focused less on stocks and more on real estate, limited partnerships, and annuities. Beyond that, financial planners have done more tax planning than anything else. Inflation, taxes, and interest rates were high, so these investments were the best mitigation. The stock market has performed so badly for so long that investors didn’t want to do much about it. As the US turned into the 1980s, families realized their need for a financial planner due to new tax laws, 401(k)s and the stock market finally starting to take off again.
So will Bitcoin fix this? The answer is yes. One of the main reasons gold fails as money is that it is difficult to keep safely and difficult to split. The most common solution is to use a bank to store gold and then use bank certificates to show how much gold is being transferred by one party to the other. Over time, these certificates became what we now know as a dollar bill. So when Franklin D. Roosevelt signed Executive Order 6102 stating that “all persons shall deliver on or before May 1, 1933, all gold coins, gold bars, and gold certificates which they now possess to the Federal Reserve, a branch or agency, or to any bank A member of the Federal Reserve System, “The only legal option for US citizens was to deal in dollars.
This law gave the government the ability to print as much money as possible without any accountability. Nixon’s shock eventually exposed this problem. Bitcoin solves this problem with stable supply, easy and secure self-custodianship and the ability to send large or small increments between two parties; It excels in areas where gold has failed. With Bitcoin, the general public can use the currency as a store of value again.
Should financial planners be concerned that Bitcoin will bankrupt them? In the Bitcoin Magazine The article, “The Role of the Financial Advisor in the World of Hyperbitcoinsing,” Trent Dudenhofer argued that financial planners will not run out of jobs, but that the evolution of money will redefine their responsibilities. This change will be a direct result of the incentive model change because Bitcoin will fix money. The need for financial planners will decrease as the need to override inflation will decrease. When people need less time with a financial advisor, the meeting becomes a more comprehensive strategy session that takes place only every two or three years.
Also, in Dudenhoeffer’s article, he states that financial advisors will be the ones who will include a large number of people in Bitcoin in the future. This response will mainly be because the advisor is the gatekeeper to most of the client’s assets. He brought up these specific situations that financial planners will help clients in the age of Bitcoin: Does it make sense for clients to take out a mortgage using a portion of their Bitcoin as collateral, Will the client need help setting up multi-signatures i.e. mobile and desktop wallets will serve the client’s needs perfectly The best and whether or not clients should participate in peer-to-peer lending protocols to earn an additional return. Fortunately, the dawn of this era may be sooner than we think with the new products at Watchdog Capital, the Swan Bitcoin “Swan Advisor” and many others coming to market.
Certainly, many financial advisors are already working in this field for altruistic reasons and seek to help those who come to them for guidance. Unfortunately, red tape or negative incentives from the government or corporate office often prevent these clients from serving their clients well. The hope for these consultants should be that in the future, they will be able to accommodate fewer clients in order to maximize the care and attention they provide to each individual. As we have seen throughout the past 50 years of financial planning history, financial planners are learning to adapt to market demands and clients will always need help with basic financial responsibilities such as budgeting, taxes, healthcare and long-term planning. In investing today, advisors must build portfolios to beat the cost of inflation or they don’t protect the investor’s purchasing power. However, when customers hold bitcoin, they will only invest if they can beat the appreciation of the purchasing power of bitcoin. The Bitcoin standard will completely turn investment strategies on its head. The future of financial planning lies in the hands of those who adapt to the coming monetary revolution to better help their clients.
This is another guest Brian. The opinions expressed are their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.